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Bank Reconciliation Statement. The purpose of the bank reconciliation statement Due to the timing difference, omissions and errors made by the bank or.

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Presentation on theme: "Bank Reconciliation Statement. The purpose of the bank reconciliation statement Due to the timing difference, omissions and errors made by the bank or."— Presentation transcript:

1 Bank Reconciliation Statement

2 The purpose of the bank reconciliation statement Due to the timing difference, omissions and errors made by the bank or the firm itself. The balance of the bank statement and the bank account in the cash book rarely agree. Bank reconciliation statements can be used To explain the reasons for the differences and to identify errors and omissions in both documents, so that corrections can be made as soon as possible.

3 Reasons for differences between the cash book balance and the bank statement balance 1. Uncredited items They are deposits paid into the bank. These items occurred too close to the cut-off date of the bank statement and so do not appear on the statement. They will appear on the next statement. Banking made shown in the cash book But not on the bank statement

4 2. Unpresented cheques They are cheques issued by the firm that have not yet been presented to its bank for payment. 3. Standing orders They are standing instructions from the firm to the bank to make regular payments. 4. Direct debits They are payments made directly through the bank. 5. Bank charges They are charges made by the bank to the company for banking services used.

5 6. Dishonoured cheques They are cheques deposited but subsequently returned by the bank due to the failure of the drawer to pay. 7. Credit transfers / direct credits They are money received from customers directly through the banking system. 8. Interest allowed by the bank They are interest received for deposits or fixed deposits.

6 Nature of the cash book and bank statement Cash Book (bank column only) Debit represents an increase Credit represents an decrease Bank Statement DrCrBalance (represents decrease) (represents increase) (represents the amount owned to the clients)

7 Drawing up a bank reconciliation statement 1. To reconcile the Bank statement with the Corrected Cash Books 2. To reconcile the Bank statement with Unadjusted Cash Book

8 To reconcile the bank statement with corrected cash book Three steps: 1. Check the bank statement and the cash book to identify the items which have been omitted. 2. Update the cash book with any omissions and errors made by the firm itself. e.g. Credit transfers (debit cash book) Bank interest (debit cash book) Standing orders / direct debits (credit cash book) Bank charges (credit cash book) Dishonoured cheques (credit cash book) 3. Prepare the bank reconciliation statement

9 Bank Reconciliation Statement as at XXXX$ Corrected balance in hand as per Cash Bookx Add Unpresented chequesx Wrong credits by the bankxx x Less Bank deposits not yet entered on Bank Statementx Wrong debits by the bankxx x

10 Example 1

11 Cash book(Bank column) 1996 $ Dec 1 Bal b/f 2800 3 W Lee 1000 10 T Cheung 2000 30 S Sin 1400 1996 $ Dec 8 K Wong 1600 20 C Kwok 700 29 M Tang 100 31 Bal c/f 4800 7200 Bank Statement 1996 Dr Cr Balance $ $ Dec 1 Balance 2800 3 Cheque deposit 1000 3800 8 Cheque 76343 1600 2200 10 Cheque deposit 2000 4200 11 Dishonoured cheque 2000 2200 11 Service charges 30 2170 12 Autopay-rent 250 1920 20 Cheque 76344 700 1220 31 Bank interest 50 1270 31 Credit transfer-commission received 300 1570 31 Balance 1570 Uncredited items Unpresented cheque Bank charges Direct debit Question:

12 Cash Book (Bank Column) 1996$ 31 Commission Rec. 300 31 Bank Interest 50 5,150 Dec 31 Balance b/f 4,800 Dec 31 T. Cheung – Dishonoured cheque 2,000 31 Bank charges 30 31 Rent 250 31 Balance c/f 2870 5,150 Identify the items which have been omitted in the cash book Answer:

13 Bank Reconciliation Statement as at 31 Dec 1996 $ Corrected balance in hand as per Cash Book Unpresented cheques100 Bank deposits not yet entered on Bank Statement 1400 Balance in hand as per Bank Statement 2870 1570 Add Less 2970 Only adjusted caused by timing difference

14 Two steps : 1. Check the bank statement and the cash book to identify the items which have been omitted. 2. Prepare the bank reconciliation statement. To reconcile the bank statement with the Unadjusted cash book

15 Begin with the unadjusted cash book balance and end with the bank statement balance Bank Reconciliation Statement as at XXXX$ Corrected balance in hand as per Cash Bookx Add Credit transfersx Bank interest x Unpresented chequesx Wrong credits by the bankxx x Less Standing orders / direct debitsx Bank chargesx Dishonoured chequesx Bank deposits not yet entered on Bank Statementx Wrong debits by the bankxx Balance in hand as per Bank Statementx Amount received on bank statement But not on bank statement Timing difference Bank error

16 Example 2 The facts are the same as Example 1, but the cash book was not updated.

17 Bank Reconciliation Statement as at 31 Dec 1996$ Corrected balance in hand as per Cash Book 4,800 Add Credit transfers 300 Bank interest 50 Unpresented cheques 100 __450 5,250 Less Bank charges 30 Dishonoured cheques 2,000 Bank deposits not yet entered on Bank Statement 1,400 Direct debit 250 3,680 1,570 Answer:

18 Other Issues A. Post-dated cheque It is a cheque which has not yet matured within the current accounting period. Accounting treatment The cheque should be held by the cashier and no entry should be made until the cheque becomes mature. If a post-dated cheque has been entered in the cash book, make correcting entries. Dr Debtors Cr Bank With the amount of the post-dated cheque

19 B. Stale cheque It is a cheque which has been drawn for more than 6 months but has not yet gone through the bank of the drawee. Accounting treatment: Dr Bank Cr Creditor With the amount of the state cheque

20 C. Errors made by the bank i. Errors corrected within the current accounting period ii. Errors not corrected within the current accounting period

21 Errors corrected within the current accounting period -As the error has been corrected by the bank within current accounting period, no adjustment is needed.

22 Bank Statement DrCrBalance 1996 $ $ Dec 1 Balance 240 1 Cheque 54321520 280 O/D 2 Credit 2,000 1,720 8 Cheque 54232 1,600 120 20 Cheque 10674 300 180 O/D 20 Adjsutment 300 120 Example 3 : No adjustment should be made

23 Errors not corrected within the current accounting period Example 4 : An amount of $1,000 which should be credited into the owners personal account was wrongly credited by the bank to the companys bank account. The balance of the cash book is $4,000 and the balance of the bank statement was $5,000 at 31 Dec 1996

24 Bank Reconciliation Statement as at 31 Dec 1996 $ Balance in hand as per Cash Book 4,000 Add wrong credit by the bank 1,000 5,000 As it is an error made by the bank, no adjustment is needed in the companys cash book Answer:

25 D. Different opening balances of the cash book and the bank statement The following steps should be taken: 1. Reconcile the opening cash book balance with the opening bank statement balance. 2. The adjusting items for the opening balances should not appear in the bank reconciliation statement of the current period. 3. Prepare the bank reconciliation statement.

26 Example 5

27 Cash book(Bank column) 1996 $ Dec 1 Bal b/f 10600 2 C Lee 2800 8 P Wong 1538 31 T Kong 1300 1996 $ Dec 2 Bank charges( Nov) 500 28 K Tong-742 1000 29 C Au-743 1400 30 China Ltd-744 2100 31 Bal c/f 11238 7200 Bank Statement 1996 Dr Cr Balance $ $ Dec 1 Balance 11500 2 Credit 1000 12500 2 Credit 2800 15300 3 736 2400 12900 8 Credit 1538 14438 22 Standing order-rent 4000 10438 24 Service charges 200 10238 28 742 1000 9238 31 Balance 9238 Uncredited item Unpresented cheque Question : Adjusting items for opening balance

28 Bank Reconciliation Statement as at 1 Dec 1996$ Balance in hand as per Cash Book Add Less The adjusting items for the opening balance should not appear in the bank reconciliation statement as at 31 Dec 1996 Step 1 Unpresented cheque2400 10,600 13,000 uncredited item 1,000 Bank charges 500 1,500 11,500 Balance in hand as per Bank Statement Answer

29 Cash Book (Bank Column) 1996$ Dec 31 Balance b/f 11,238 11,238 Dec 31 Rent 4,000 31 Service charges 200 31 Balance c/d 7038 11,238 Step 2

30 Bank Reconciliation Statement as at 31 Dec 1996 $ Corrected balance as per Cash Book Add Less Balance in hand as per Bank Statement 7,038 Unpresented cheques ($1,400+$2,100) 3,500 10,538 Uncredited item 1,300 9,238 Step 3

31 E. Bank overdrafts When there is a bank overdraft, the presentation of the bank reconciliation statement can be: a. the same as those needed for a debit balance, but begins with a negative figure, or b. the opposite of those needed for a debit balance.

32 Example 6

33 Cash book(Bank column) 1996 $ Dec 1 Bal b/f 500 6 Cash 50 13 C Lee 200 31 R Wong 390 31 Bal c/d 150 1996 $ Dec 8 A Tong 300 16 T Chan 500 28 Textile Ltd 490 1997 Jan 1 Bal b/d 150 1290 Bank Statement 1996 Dr Cr Balance $ $ Dec 1 Balance 500 6 Cash 50 550 8 A Tong 300 250 13 C Lee 200 450 16 T Chan 500 50 O/D 29 United Trust-standing order 270 320 O/D 31 Bank charges 40 360 O/D 31 Balance 360 O/D Uncredited item Unpresented cheque Question :

34 Cash Book (Bank Column) 1996$ Dec 31 Balance c/f 460 460 Dec 31 Balance b/f 150 31 United trust 270 31 Bank charges 40 460 Answer:

35 Bank Reconciliation Statement as at 31 Dec 1996 $ Corrected balance as per Cash Book (Overdraft) Add Less Balance as per Bank Statement (overdraft) Unpresented cheques 490 Uncredited item 390 (460) (360) 30


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